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A lifetime of innovation

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Toni Schönfelder
A lifetime of innovation

From Russia With Love
by Jonathan Chait

Post date 03.27.02

During the Cold War, there was a cabal of activists and intellectuals who believed the Russian economic model held the key to human salvation and worked tirelessly to impose that system upon the United States and the rest of the world. Those people were communists. In the time since the Soviet Union collapsed, there has been a shortage of intellectuals touting the superiority of the Russian economic model--that is, until now. The difference is that today these people are all conservatives.

The occasion for this turnabout is that Russia has instituted the holiest of conservative holy grails: a flat tax. Last year, President Bush praised Russian President Vladimir Putin, observing, "I am impressed by the fact that he has instituted tax reform--a flat tax." In the last month, National Review Online published two articles urging the United States to follow Russias example. One was by columnist Deroy Murdock. (Headline: "Russians Do Taxes Right".) The other came from Heritage Foundation scholar and conservative movement apparatchik Daniel Mitchell. ("Russia: 1, U.S.: 0.") "Russias flat tax already beats Americas punitive redistribution-oriented tax code hands down..." gloats Mitchell, "[W]hile Russia enjoys its flat tax, Americans still have to navigate the hundreds of forms required by all 45,000 pages of our mind-numbing tax code." Murdock also glories in Russias superiority. "While ex-Communist states confidently reject progressive taxation," he writes, "America remains plagued by Marxian class-warfare rhetoric." Dont you see, comrade? While America is brutalized by class warfare, Russians revel in their workers paradise!

The conservative argument--and I suspect well be hearing more of it in the coming years--is that the flat tax has worked in Russia, and it would work here, too. As Mitchell writes, "The Russian flat tax has proved a smashing success since it took effect in January 2001. Russias economy grew by more than 5% last year." Therefore, "The Russian experience confirms--again--that revenues rise under a flat tax."

Like the rapturous accounts of Soviet industrialization produced by fellow travelers during the 1930s, the conservative glorification of Russias flat tax requires a bit of scrutiny. Its true that Russias economy and tax revenues have grown since it imposed a flat tax. But prior to the flat tax, Russia had a basket-case economy and one of the least effective tax systems in the world. Just because the flat tax represents an improvement on the Russian system, it does not necessarily follow that it would represent an improvement on the American system. Distributing sacks of grain has improved the quality of life in Afghanistan, but this hardly proves that the same policy would work just as well here.

Yet when Mitchell writes that Russias case "confirms ... that revenues rise under a flat tax," hes suggesting it would have the same effect in America. Obviously, it depends on circumstances. The old Russian tax code was in a state of collapse--so riddled with loopholes, inconsistent enforcement, and corruption that rich, well-connected people paid almost nothing. It wasnt the flattening of the tax rates that made these people pay more taxes, it was the fact that Putin cracked down on favoritism and noncompliance. Any system that involved a strong central government rationalizing and enforcing tax laws would be more efficient than the old Russian system.

The situation in United States could not be more different. Although we have plenty of loopholes and tax evasion, we still have a functioning tax system that rich people have trouble avoiding. And right now the rich, contrary to popular myth, pay more of their income in taxes than the middle class or poor. Indeed, this is why Mitchell hates the American tax code so deeply. His lifes work is finding ways to reduce the tax burden on the rich. When hes not advocating a flat tax, hes urging lower tax rates for capital gains (a kind of income that overwhelmingly accrues to the rich, and which is already taxed at half the rate of ordinary income), or lobbying the government not to crack down on offshore tax havens used by rich people and corporations to stiff the IRS. Its possible that one day our tax code will become so riddled with evasion and special loopholes that a flat tax would make it more progressive. But, if so, that would only be because Mitchell had worked so hard to cripple the existing system.

In the meantime, conservatives will pine away for their Russian paradise. Murdock laments, "Too bad this isnt Russia." If you like it so much, Deroy, why not just move there?

Jonathan Chait is a senior editor at TNR.

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